The Stark Law Rules of the Road. An overview of the Stark Law to help interested physicians acquire an introductory knowledge of this intricate law

Transcription

1 The Stark Law Rules of the Road An overview of the Stark Law to help interested physicians acquire an introductory knowledge of this intricate law

2 Rules of the Road how physicians can navigate the Stark Law I. Purpose of this document 1.1 What is the purpose of this Rules of the Road document? The Stark statute and regulations (collectively referred to as the Stark Law ) significantly restricts physician referral patterns and limits many but not all types of business relationships into which physicians may enter. This Rules of the Road document discusses many of the key requirements of and exceptions to the Stark Law, as the AMA understands them to currently exist, and highlights areas where physicians retain flexibility. 1.2 This document is intended only to be an introduction to certain aspects of the Stark Law. This document is intended to help interested physicians acquire an introductory knowledge of the Stark Law. This document does not describe all of the Stark Law s aspects even in an introductory manner. The Stark Law is complicated, and its application in any specific situation is heavily dependent on the facts of that unique situation. Instead, this document discusses, through examples where appropriate, some of the aspects of the Stark Law that may be most germane to the types of transactions and business relationships in which physicians most frequently find themselves involved. 1.3 Legal disclaimer. This document is intended to provide only general information about the Stark Law based on the AMA s current understanding. The examples discussed are illustrative only and should not be used as a basis for determining compliance with the Stark Law. The AMA provides this document with the express understanding that this document does not create an attorney-client relationship between the AMA and the reader, and the AMA is not providing legal advice. The reader should seek legal advice from retained legal counsel when assessing compliance with the Stark Law (including assessing changes in the Stark Law or other developments since the preparation of this document.) II. What is the Stark Law and what does it prohibit? 2.1 The Stark Law s initial prohibition applied only to clinical lab services. The Stark Law, also known as the Ethics in Patient Referrals Act of 1989 (the Act), became effective on January 1, The Act, as amended over time along with its associated regulations, is frequently referred to as the Stark Law because Congressman Pete Stark sponsored the bill that ultimately became the Act. On its effective date, the Stark Law (Stark I) prohibited physicians from ordering clinical laboratory services for Medicare patients from an entity with whom the physician (or an immediate family member of that physician) had a financial relationship. 2.2 The Stark Law prohibition today applies to a broader range of designated health services. Effective January 1, 1995, the Stark Law s prohibition was 1 The Stark statute is located at 42 USC 1395nn and the regulations at 42 CFR et seq.

3 2 expanded to include other services in addition to clinical laboratory services (Stark II). Currently, the Stark Law prohibits: (1) a physician from referring Medicare patients to entities for the provision of designated health services (DHS) if the physician (or an immediate family member) has a direct or indirect financial relationship with that entity; 2 and (2) an entity that furnishes DHS pursuant to a prohibited referral from billing the Medicare program or any individual, third party payer, or other entity for the DHS. 3 This document discusses DHS in detail in VII. III. What happens if the Stark Law is violated? 3.1 Denial of payment. The Medicare program is prohibited from paying for DHS furnished pursuant to a prohibited referral Refund of payments. Any entity that that collects a payment for DHS that was performed pursuant to a prohibited referral must timely refund such payment Imposition of civil monetary penalties by the Centers for Medicare and Medicaid Services (CMS). Any person or entity who bills Medicare for a DHS that the person or entity knew, or should have known, resulted from a prohibited referral is subject to a civil money penalty of not more than $15,000 for each such service Assessment of a penalty by the Office of the Inspector General (OIG) of the U.S. Department of Health and Human Services (DHHS). Any person or entity who bills Medicare for DHS that the person or entity knew, or should have known, resulted from a prohibited referral is also subject to an assessment by the OIG of three times the amount claimed for the DHS Civil monetary penalty for involvement in a circumvention scheme. Any physician or other entity that enters into an arrangement or scheme (such as a crossreferral arrangement) that the physician or entity knows or should know has a 2 42 USC 1395nn(a)(1)(A); 42 CFR (a), 42 CFR (a) 3 42 USC 1395nn(a)(1)(B); 42 CFR (b) 4 42 USC 1395nn(g)(1); 42 CFR (c)(1) 5 42 USC 1395nn(g)(2) 6 42 USC 1395nn(g)(3) 7 See 42 CFR (b)(viii)

4 3 principal purpose of assuring referrals by the physician to a particular entity which, if the physician directly made referrals to such entity, would violate the Stark Law, is subject to a civil money penalty of not more than $100,000 for each such arrangement or scheme Example of a possible circumvention scheme. Suppose Physician A has an ownership interest in an independent diagnostic treatment facility (IDTF 1). Suppose also that Physician A is not permitted under the Stark Law to refer Medicare patients to the IDTF 1 for the provision of DHS. Suppose that Physician B practices in the same town as Physician A and also has an ownership interest in another IDTF (IDTF 2) to which she is not permitted to refer Medicare patients for the provision of DHS. Finally, suppose that the Stark Law does not prohibit Physician A from referring to IDTF 2 and Physician B is not prohibited from referring to IDTF 1. Physicians A and B would enter into a prohibited circumvention scheme if Physician A agreed to refer all of his/her Medicare patients to IDTF 2 in exchange for Physician B agreeing to refer all of his/her Medicare patients to IDTF Exclusion from Federal health care programs. A violation of the Stark Law can result in exclusion from federal health care programs. 9 IV. When does a referral occur? 4.1 The Stark Law only applies to a physician when he or she makes a referral. The Stark Law does not apply to all physician activities. Instead, the Stark Law only applies when a physician has made a referral, as defined by the Stark Law. Accordingly, in terms of deciding whether or not the Stark Law applies, the physician must ask whether or not he or she is making Stark Law referrals. 4.2 What is a referral? The following describe the different types of conduct that constitute, and do not constitute referrals under the Stark Law A referral is a request, order, or certification. A referral is the request by a physician for, the ordering of, or the certifying or recertifying of the need for, any DHS, including the request for a consultation with another physician and any test or procedure ordered by or to be performed by (or under the supervision of) that other physician. A referral does not include DHS personally performed or provided by the referring physician USC 1395nn(g)(4) 9 42 USC 1395nn(g)(3) and (4) USC 1395nn(h)(5)(A); 42 CFR

5 A referral is also the establishment of a plan of care. A referral is also the establishment of a plan of care by a physician that includes the provision of DHS, but again, does not include any DHS personally performed or provided by the referring physician Conduct that does not constitute a referral. The Stark Law excepts specific types of conduct from the definition of referral. If a physician s conduct falls within the categories described in the following subsections, the physician has not made a referral and the Stark Law does not apply A physician personally performing a DHS does not constitute a referral. A referral does not occur when a referring physician personally performs the DHS. 12 (1) Example of a DHS that is personally performed by a physician. Suppose a physician examines a patient and determines that the patient requires an antigen to treat an allergic reaction. The physician would not make a referral for the provision of that antigen if the physician personally administered the antigen to the patient. 13 However, if the antigen were administered by another physician in the referring physician s group practice, the provision of the antigen would occur pursuant to a referral (although the referral could potentially fit into the Stark Law physician services or in-office ancillary services exceptions.) Certain requests by pathologists, radiologists, or radiation oncologists are not referrals. A request by a pathologist for clinical diagnostic laboratory tests and pathological examination services, a request by a radiologist for diagnostic radiology services, and a request by a radiation oncologist for radiation therapy or ancillary services necessary for, and integral to, the provision of radiation therapy, are not referrals if: (1) the request results from a consultation initiated by another physician; and (2) the tests or services are furnished by or under the supervision of the pathologist, radiologist, or radiation oncologist, or under the supervision of a pathologist, radiologist, or radiation oncologist, respectively, in the USC 1395nn(h)(5)(B); 42 CFR CFR FR 16054, 16063; See 69 FR See 69 FR 16070

6 5 same group practice as the pathologist, radiologist, or radiation oncologist What if a physician writes an order for DHS but does not direct where the Medicare beneficiary should receive those DHS? It appears that in certain circumstances, a physician s ordering a DHS may not constitute a referral even if the Medicare beneficiary receives those DHS from an entity with which the physician has a financial relationship. Commentary from CMS seems to suggest that the ordering physician does not suggest or otherwise influence where the patient receives the ordered DHS, and the Medicare beneficiary obtains the DHS from an entity with whom the physicians has a compensation arrangement, the physician will not have made a referral to that entity. 16 V. If a referral occurred, did the physician make the referral? 5.1 A physician can make a referral even if he or she is not the one who orders or requests the DHS. A physician can make a Stark Law referral even if he or she does not actually order or request the DHS, depending on the extent to which the physician controls those who are performing the ordering or requesting Example illustrating how a referral may be attributed to a physician even if the physician did not actually make the referral. Suppose a physician assistant who works in a physician s practice refers a patient to a particular imaging facility because the physician has instructed her clinical staff to refer certain diagnostic procedures to that facility. Because the referral would be made pursuant to the physician s instructions, i.e., pursuant to the physician s control, CMS would treat the physician assistant s referral as if the physician herself made the referral. 17 VI. Are the referred items or services for a Medicare beneficiary? 6.1 The Stark Law only applies when the referral concerns a Medicare beneficiary. If the patient involved is not a Medicare beneficiary, then the Stark Law does not apply USC 1395nn(h)(5)(C); 42 CFR FR 856, See e.g., the discussion at 66 FR 900

7 6 VII. Is the referral for DHS? 7.1 The Stark Law only applies to referrals for DHS. The Stark Law does not apply to all health care services. The Stark Law only applies to referrals for DHS Example of a referral not involving a DHS. Suppose a physician refers a Medicare patient to a hospital in order to receive lithotripsy services. The physician would not have made a referral for DHS, because lithotripsy is not DHS What is a designated health service? DHS includes any of the following services: (1) clinical laboratory services; (2) physical therapy, occupational therapy, and outpatient speech-language pathology services; (3) radiology and certain other imaging services, except for the following, which are not considered to be DHS (a) X-ray, fluoroscopy, or ultrasound procedures that require the insertion of a needle, catheter, tube, or probe through the skin or into a body orifice; (b) radiology or certain other imaging services that are integral to the performance of a medical procedure that is not identified on the list of CPT/HCPCS codes as a radiology or certain other imaging service and is performed: (i) immediately prior to or during the medical procedure; or (ii) immediately following the medical procedure when necessary to confirm placement of an item placed during the medical procedure. radiology and certain other imaging services that are "covered ancillary services," as defined at 42 CFR (b), for which separate payment is made to an ambulatory surgery center; (4) radiation therapy services and supplies; (5) durable medical equipment and supplies; (6) parenteral and enteral nutrients, equipment, and supplies; (7) prosthetics, orthotics, and prosthetic devices and supplies; FR See also American Lithotripsy Society v. Thompson, 215 F. Supp. 2d 23 (D.D.C. 2002).

8 7 (8) home health services; (9) outpatient prescription drugs; and (10) inpatient and outpatient hospital services Designated Health Services does not include services that are reimbursed as part of a composite rate. Generally, DHS does not include services that are reimbursed by Medicare as part of a composite rate (for example, ASC services, except to the extent that services listed section 7.2(1) (10) above are themselves payable through a composite rate (for example, all services provided as home health services or inpatient and outpatient hospital services are DHS) DHS includes professional and technical components. Some DHS, such as diagnostic imaging tests, have both a technical component (the performance of the test itself) and a professional component (the interpretation of the test). Both the technical and professional components of a DHS are themselves DHS Health care services that are not DHS when furnished outside of inpatient and outpatient settings may be transformed into DHS when furnished in those settings. One potential trap concerning DHS and the Stark Law can occur when a health care service that is not a DHS outside of the hospital setting becomes a DHS when provided in the hospital setting Example illustrating how a non-dhs can be transformed into a DHS in the hospital setting. Diagnostic cardiac catheterization services are not DHS when provided outside of the hospital outpatient or inpatient context. Such services do become DHS when they are furnished in a hospital inpatient or outpatient setting because inpatient and outpatient hospital services are DHS How can a physician know if a particular service is a DHS? CMS defines some DHS through specific CPT and HCPCS codes on its Website. CMS publishes a list that defines all DHS under the following categories in terms of specific CPT/HCPCS codes: (1) clinical laboratory services; (2) physical therapy services, occupational therapy services, outpatient speech-language pathology services; (3) radiology and certain other imaging services; and (4) radiation therapy services and supplies. These CPT/HCPCS codes can be accessed at USC 1395nn(h)(6); 42 CFR CFR ; see e.g., the discussion starting at 69 FR For example, see the discussion at 66 FR See e.g., 66 FR 929

9 8 The remaining categories of DHS are not defined through specific CPT or HCPCS codes. VIII. Is the referral to an entity that furnishes DHS? Even if a (1) physician (2) makes a referral (3) for DHS (4) for a Medicare beneficiary, the Stark Law does not apply unless the DHS are furnished by an entity that furnishes DHS. 8.1 What is an entity? The term entity itself is defined broadly. It can, for example, be a solo or group practice medical practice. But entity can also be a corporation, partnership, limited liability company, foundation, nonprofit corporation, or unincorporated association that furnishes DHS. So an entity could include a physician professional association, a hospital, a nursing facility, an independent diagnostic treatment facility What is an entity that furnishes DHS? There are two types of entities that furnish DHS An entity that furnishes DHS can be an entity or person that bills the Medicare program for DHS services. An entity that furnishes DHS is an entity or person that bills the Medicare program for DHS Examples of entities that bill Medicare for the provision of DHS. All of the following would constitute entities furnishing DHS : a hospital billing the Medicare program for the provision of a CT scan; a solo physician practitioner billing the Medicare program for administering drugs in her or her office; a medical practice billing Medicare for an interpretation of an MRI scan performed by one of the group s physician members An entity that furnishes DHS can be an entity or person that performs DHS services that are billed to the Medicare program. Effective October 1, 2009, CMS expanded the definition of entity that furnishes DHS to include those persons or entities that perform DHS, even if another person or entity bills the Medicare program for those DHS Example of an entity that performs, but does not bill, the Medicare program. Suppose a hospital wishes to provide cardiac catheterization (CC) services to its patients, but does not own the equipment. A physician group practice in town does, however, own CC equipment. Rather than purchasing the CC equipment and providing those services itself, the hospital and the group practice enter into an under arrangements CFR CFR CFR ; See also the discussion beginning at 73 FR 48721

10 9 transaction by, for example, creating a joint venture which would own the CC equipment. The hospital would purchase the cardiac catheterization services for its patients from the joint venture and bill the Medicare program for those services. The group practice would furnish all of the equipment, personnel, and supplies necessary to provide those services through the joint venture, and would refer Medicare patients to the joint venture. Because of the expansion of the definition of entity that furnishes DHS to include an entity or person that performs DHS, the joint venture would be considered a DHS entity, in addition to the hospital So what does it mean to perform a DHS? CMS has not defined the word performs. CMS has stated, however, that: We do not consider an entity that leases or sells space or equipment used for the performance of the service, or furnishes supplies that are not separately billable but used in the performance of the medical service, or that provides management, billing services, or personnel to the entity performing the service, to perform DHS. 27 (1) Example of an arrangement involving physicians that would not appear to cross the performs threshold. Suppose a physician group practice owns a mobile CT scanner. The practice leases the use of the scanner to a local hospital one day a week, and hospital staff performs the tests using the scanner while it is at the hospital. In such a case, the practice would not become a DHS entity by leasing the scanner to the hospital because leasing in and of itself does not constitute the performance of DHS. In the final Medicare Physician Fee Schedule for 2010, CMS acknowledged that it had received numerous questions concerning the meaning of performs and solicited comments concerning whether or not it should define or clarify this phrase, and if so, how. CMS has yet to provide further clarification. 28 IX. Does the physician or the physician s immediate family member have a financial relationship with the entity furnishing DHS services? Even if a physician (1) makes a referral of (2) a Medicare beneficiary for (3) DHS to (4) an entity that furnishes DHS, the Stark Law may not apply. In order for the Stark Law to be applicable, a financial relationship must exist between the physician or the physician s immediate family member and the entity that furnishes DHS (subsequently for convenience referred to as entity ). And, even if a financial relationship exists between 26 See the discussion starting at 73 FR FR FR

11 10 the physician or the physician s family member and the entity, the Stark Law will not apply if a Stark Law exception applies. 9.1 There are four kinds of financial relationships. There are four types of financial relationships: (1) direct ownership/investment interests; (2) indirect ownership/investment interests; (3) direct compensation arrangements; and (4) indirect compensation arrangements. Understanding the nature of the financial relationship involved is vital because the nature of the financial relationship determines what, if any, Stark Law exceptions may apply Stark Law financial relationships may exist not only between physicians and entities but also between a member of the physician s immediate family and the entity. The Stark Law defines an immediate family member to include a physician s: husband or wife; birth or adoptive parent, child, or sibling; stepparent, stepchild, stepbrother, or stepsister; father-in-law, mother-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law; grandparent or grandchild; and spouse of a grandparent or grandchild. 30 A financial relationship involving any person falling under one of the aforementioned categories will trigger the Stark Law prohibition Example illustrating a financial relationship between a physician and an entity created via a family member. Suppose a physician in solo practice has her office in a building owned by her and six other physicians, one of whom is her step brother. The building contains a laboratory that is owned by a group practice in which the step brother is a shareholder. The Stark Law would prohibit her from referring Medicare beneficiaries to the lab for the provision of DHS unless the financial relationship between the lab and the physician s step brother met the requirements of a Stark Law exception What is an ownership or investment interest? An ownership or investment interest in an entity furnishing DHS can be through equity, debt, stock, partnership shares, limited liability company memberships, as well as loans, bonds, or other financial instruments that are secured with an entity's property or revenue, or a portion of that property or revenue What is a direct ownership/investment interest? A direct ownership/investment interest exists when there is no intervening USC 1395nn(a)(2); 42 CFR (a)(1) CFR See 60 FR USC 1395nn(a)(2); 42 CFR (b)(1)

12 11 ownership/investment interest between the physician (or immediate family member) and the entity Examples illustrating direct ownership/investment interests. A physician shareholder in a physician group would have a direct ownership/investment interest in an entity if the group practice billed the Medicare program for providing DHS services, e.g., physical therapy services. A physician would also have a direct ownership/investment interest in an entity if the physician owned stock in a for-profit general acute care hospital or in an IDTF that served Medicare beneficiaries What is an indirect ownership or investment interest? An indirect ownership or investment interest exists if the following two requirements are satisfied Does an unbroken chain of ownership/investment interests exist between the physician and the entity? There must exist between the physician (or family member) and the entity an unbroken chain of any number (but no less than one) of persons or entities having ownership or investment interests. 34 (a) Example of an unbroken chain of ownership/investment interests. Suppose a physician s step-daughter has an ownership interest in a local nursing home. The nursing home in turn owns a portion of a corporation that provides durable medical equipment (DME). An unbroken chain of ownership/investment interests exists between the step-daughter and the DME corporation, because the stepdaughter has a direct ownership/investment interest in the nursing home, and the nursing home has an ownership/investment interest in the DME corporation The DHS provider must know that the referring physician or the physician s family member has an ownership or investment interest in the entity. The entity must have actual knowledge of, or act in reckless disregard or deliberate ignorance of, the fact that the referring physician (or family member) has some ownership/ investment interest (through any number of intermediary ownership or investment interests) in the entity. 36 (1) To what extent is an entity responsible for investigating whether a referring physician (or family member of that physician) has an CFR (a)(2)(i) CFR (a)(5)(i)(A); 42 CFR (a)(5)(iv) 35 Other examples and further discussion can be found starting at 69 FR CFR (a)(5)(i)(B)

13 12 indirect ownership or investment interest in the entity? The knowledge requirement of section does not require an entity to affirmatively investigate every possible indirect ownership or investment interest that a referring physician may have with the entity. Instead, an entity has a duty to make a reasonable inquiry concerning a possible indirect ownership or investment interest if the entity learns of facts that would make a reasonable person suspect that such an indirect ownership/investment exists Ownership in a subsidiary company does not create an ownership interest in the parent company. If a physician has an ownership or investment interest in a subsidiary company, that ownership or investment interest does not create an ownership or investment interest in the parent company, or in any other subsidiary of the parent, unless the subsidiary company itself has an ownership or investment interest in the parent or such other subsidiaries. The ownership of investment interest in the subsidiary may, however, be a part of an indirect financial relationship Common ownership in an entity by itself does not create an ownership or investment interest in another common owner. If a physician has a common ownership or investment interest in an entity, that interest does not, in and of itself, establish an indirect ownership or investment interest by the physician in another common owner, or investor What is a compensation arrangement? A compensation arrangement is any arrangement involving remuneration, direct or indirect, between a physician (or family member) and an entity. 40 The term "remuneration" includes any remuneration, directly or indirectly, overtly or covertly, in cash or in kind. 41 The Stark statute and regulations list a few limited circumstances that do not constitute remuneration for purposes of the Stark Law What is a direct compensation arrangement? A direct compensation arrangement exists if remuneration passes between the referring physician (or FR 856, CFR (b)(2) CFR (b)(5)(iii) USC 1395nn(h)(1)(A) USC 1395nn(h)(1)(B) USC 1395nn(h)(1)(c); 42 CFR

14 13 family member) and the entity furnishing DHS without any intervening persons or entities Examples of direct compensation arrangements. The following would all constitute direct compensation arrangements between a physician and an entity: (1) a nursing home paying a physician via an independent contractor relationship to serve as the nursing home s medical director; (2) a physician renting office space from a hospital; (3) a hospital renting equipment from a physician; (4) a hospital directly employing a physician What is an indirect compensation arrangement? An indirect compensation arrangement exists between a referring physician (or family member) and an entity if the following apply Does an unbroken chain of any number (but not less than one) of financial relationships exist between the physician and the entity? An unbroken chain of financial relationships must exist between the physician (or family member) and the DHS entity. At least one of these financial relationships must be a compensation arrangement. However, so long as one of the financial relationships in the unbroken chain is a compensation arrangement, it does not matter if the other financial relationships are direct or indirect ownership interests. 45 (1) Example of an unbroken chain of at least two financial relationships. Suppose a physician owns stock in a for-profit hospital. The hospital contracts with a clinical laboratory to provide specific laboratory services to the hospital s patients, and that the physician orders tests for Medicare beneficiaries from that laboratory. An unbroken chain of financial relationships one being a compensation arrangement exists between the physician and the laboratory, i.e., (1) the physician has a direct ownership/investment interest in the hospital, and (2) the hospital has a compensation arrangement with the laboratory CFR (c)(1)(i); see also the general discussion starting at 66 FR See the general discussion starting at 66 FR CFR (c)(2) FR 866

15 Does the physician (or family member) receive aggregate compensation that varies with, or takes into account, the volume or value of referrals or other business generated by the referring physician for the entity? 47 To determine whether or not this factor applies, an initial question must be answered, namely, which compensation arrangement must be analyzed. (1) What compensation arrangement needs to be examined if the physician s direct financial relationship in the unbroken chain of financial relationships is an ownership/investment interest? If the physician s direct financial relationship is an ownership/investment interest, the determination of whether the aggregate compensation varies with, or takes into account, the volume or value of referrals or other business generated by the referring physician for the entity is determined by examining the compensation arrangement closest to the referring physician. 48 (a) Example illustrating how to identify the compensation arrangement that must be examined. Suppose Physician A holds a one percent ownership interest in a management services organization (MSO). The MSO provides physician practice management services to Group Practice P. Group Practice P owns and operates an MRI on its premises, and Physician P frequently refers Medicare patients to the group practice for MRI tests. In this example, Physician A s direct financial relationship is her one percent ownership interest in the MSO. The compensation arrangement closest to Physician A is the compensation arrangement under the management contract between the MSO and Group Practice P. Accordingly, it is that compensation arrangement that must be analyzed to determine whether the aggregate compensation varies with or takes into account, the volume or value of referrals or other business generated by Physician A for Group Practice P. 49 (b) Second example illustrating how to identify the compensation arrangement that must be examined. Suppose Physician P has an ownership interest in Company A. Company A, in turns, owns Company B. Company B has a compensation arrangement with Company C. Finally, Company C has a compensation arrangement with a DHS entity to which Physician P refers Medicare patients for the provision of DHS. In this example, the compensation arrangement CFR (c)(2)(ii) CFR (c)(2)(ii) FR

16 15 between Company B and Company C would be analyzed to determine whether the aggregate compensation varies with or takes into account, the volume or value of referrals or other business generated by Physician P for DHS entity. 50 (2) What compensation arrangement needs to be examined if the physician s direct financial relationship in the unbroken chain of financial relationships is a compensation arrangement? If the physician s direct financial relationship is a compensation arrangement, then the focus is on that compensation arrangement. (a) Example illustrating how to identify the compensation arrangement that must be examined. Suppose a management company has contracted with a hospital to provide management services. The management company in turn hires a physician group to provide some of the services that the management company is obligated to provide to the hospital under the management contract. Physician A is an employee of the physician group, and refers Medicare patients to the hospital for DHS. Three compensation arrangements exist in this example: (1) compensation from the hospital to the management company; (2) compensation from the management company to the physician group; and (3) the compensation paid by the physician group to Physician A. To determine if an indirect compensation arrangement exists between the hospital and Physician A, the direct compensation arrangement between Physician A and the physician group must be analyzed to determine whether the aggregate compensation varies with or takes into account, the volume or value of referrals or other business generated by Physician A for the hospital. 51 (3) Example illustrating aggregate compensation that varies with or takes into account, volume or value of referrals or other business generated no direct ownership/investment interest involved. Suppose a physician has invented a surgical implant. A hospital in which the physician performs surgeries purchases the implants, which the physician inserts into Medicare patients during certain surgical procedures. In this case, the hospital is the DHS entity because it bills the Medicare program for the provision of the implant, which is a DHS. The medical device company that manufactures the implant makes a royalty payment to the physician every time the implant is used. To determine if an indirect compensation arrangement exists, the compensation arrangement closest to the physician, i.e., the royalty payments, must be CFR (c)(2)(ii) FR

17 16 analyzed to determine whether the aggregate compensation varies with or takes into account, the volume or value of referrals or other business generated by the physician for the hospital. In this case, the aggregate compensation does take into account the volume or value of referrals or other business generated because the physician receives a royalty payment every time he uses the implant in surgical procedures he performs at the hospital. 52 Referrals to the hospital will not be permitted under the Stark Law unless that compensation arrangement satisfies the requirements of the indirect compensation arrangement exception more fully described at XVI. (4) Example illustrating aggregate compensation that varies with or takes into account, volume or value of referrals or other business generated direct ownership/investment interest involved. Suppose physician A has an ownership interest in a physical therapy company B. The physical therapy company has a contract with a skilled nursing facility (SNF) whereby the SNF purchases physical therapy services from company B when such services are needed by the patient. The SNF then bills the Medicare program for those physical therapy services. Physician A refers patients to the SNF, and develops each such residents plans of care, which sometime include the provision of physical therapy services When such services are required, physician A has instructed SNF staff to utilize the services of physical therapy company B. In this case, the SNF is a DHS entity because it is billing the Medicare program for the provision of DHS, i.e., the physical therapy services. Since company B is compensated on a per service basis that reflects referrals by physician A, the aggregate compensation between company B and the SNF varies with or takes into account, the volume or value of referrals or other business generated by the physician for the hospital. 53 The referrals and the hospital s billing will not be permitted under the Stark Law unless that compensation arrangement satisfies the requirements of the indirect compensation arrangement exception at XVI. (4) Example illustrating how a aggregate compensation involving a fixed monthly payment can nevertheless vary or take into account, volume or value of referrals or other business generated. U.S. ex rel. Singh v. Bradford Regional Medical Center, 752 F.Supp.2d 602 (W.D.Pa. 2010) involved litigation focusing on the fair market value of payments FR FR 868

18 17 made by a hospital to sublease a nuclear camera from a physician group. The hospital s accountant determined that the hospitals lease payments reflected fair market value. The accountant reached this conclusion by comparing the revenues the hospital expected to secure with the sublease with the revenues the hospital expected to receive without the sublease. The court concluded that the fair market value appraisal took factored in the value of expected referrals. Thus, although the monthly sublease payments were the same each month, those payments still took into account the volume or value of referrals because they were based on the fair market value appraisal. 54 For further information, see the discussion of Bradford at The entity must know that the referring physician receives aggregate compensation that varies with referrals or business generated. An indirect compensation arrangement will exist between the referring physician and the entity if the entity has actual knowledge of, or acts in reckless disregard or deliberate ignorance of, the fact that the referring physician (or family member) receives aggregate compensation that varies with, or takes into account, the volume or value of referrals or other business generated by the referring physician for the entity furnishing the DHS. 55 X. What is the Stand in the Shoes requirement and what is its effect on Stark Law financial relationships? 10.1 What is the stand in the shoes (SITS) requirement? More specifically, a physician is deemed to stand in the shoes of his or her physician organization if: (1) the only intervening entity between the physician and the entity furnishing DHS is his or her physician organization; and (2) the physician has an ownership or investment interest in the physician organization Example illustrating the application of the SITS requirement. Suppose Physician A is an employee and shareholder in a group practice. The group practice leases medical office space from Hospital B, to which physician A refers Medicare patients for the provision of DHS. Prior to the application of the SITS requirement, Physician A might have had an indirect compensation arrangement with the hospital (depending on the satisfaction of other criteria) because the 54 Id. at CFR (c)(2)(iii) CFR (c)(1)(ii); 42 CFR (c)(2)(iv)(A)

19 18 group practice (the physician organization in this case) was an intervening organization between Physician A and the DHS entity, i.e., Hospital B. Because, under the SITS requirement, Physician A has the same financial relationship that his or her physician organization has with Hospital B, the Physician A now has a direct compensation arrangement with the hospital because the group practice has a direct compensation arrangement with the Hospital B, namely, the office lease What is a physician organization? The SITS requirement applies to "physician organizations." The Stark Law defines "physician organization" as a physician, a physician practice, or a group practice that complies with the requirements of the Stark definition of "group practice." 58 A physician practice is a "medical practice comprised of two or more physicians organized to provide patient care services (regardless of its legal form or ownership)." 59 A physician practice may also include a group of physicians who practice together but who do not qualify as a Stark "group practice." 60 Just because an entity provides patient care services through employed or contracted physicians, that fact alone does not make that entity a physician practice. For example, even though a hospital provides medical, surgical, or psychiatric care and treatment through employed or contracted physicians, a hospital is not a physician practice or a physician organization Physicians who are permitted, but not required, to stand in the shoes of their physician organizations. The following types of physicians are permitted, but not required, to stand in the shoes of their physician organizations Titular owners Titular owners in a physician organization are permitted to stand in the shoes of that organization. A titular owner is a physician who has an ownership interest in the physician organization but who cannot receive the benefits of ownership, e.g., the right to receive profit distributions, dividends, or other types of returns on investment FR See also 72 FR CFR The definition of group practice for Stark Law purposes is located at 42 USC 1395nn(h)(4) and 42 CFR CMS Frequently Asked Question Answer #8879, accessible at 60 CMS Frequently Asked Question Answer #8879, accessible at 61 CMS Frequently Asked Question Answer #8879, accessible at CFR (c)(1)(iii); 42 CFR (c)(2)(iv)(B). See also the discussion starting at 73 FR CFR (c)(3)(ii)(C)

20 Employees and independent contractors. Physicians who are only employees of, or independent contractors to, a physician organization are permitted to stand in the shoes of that physician organization Why is it important to know whether a physician is required to stand in the shoes of his or her physician organization? In some cases the SITS requirement will result in the creation of a direct compensation arrangement between a referring physician and an entity where previously only an indirect compensation arrangement may have existed. When such a direct compensation arrangement is created, the physician will not be able to refer to the entity unless a Stark Law exception for direct compensation arrangements applies. If the application of the SITS requirement does not create a direct compensation arrangement, an indirect compensation arrangement may still apply. If an indirect compensation arrangement exists, the affected physician(s) will be prohibited from referring to the entity unless the requirements of the exception for indirect compensation arrangements are satisfied Although some physicians may not be required to stand in the shoes of their physician organization, those physicians may nevertheless elect, or be required, to do so. As the example in section 10.4 illustrates, the SITS requirement may dictate that some physician referral relationships involving a physician organization may need to satisfy a direct compensation arrangement exception, while other relationships may need to satisfy the requirements of the exception for indirect compensation arrangements. In order to simplify compliance, non-titular physicians may elect, or be required by their physician organizations, to stand in the shoes of their physician organization so that the physician organization need only ensure satisfaction of direct compensation arrangement exceptions rather than having to monitor continually which physicians have direct compensation arrangements and those that have indirect compensation arrangements, and whether those arrangements satisfy applicable exceptions. 66 XI. Exceptions to the Stark Law s general self-referral prohibition The Stark Law contains numerous exceptions. Even if a physician refers a Medicare beneficiary for DHS to an entity with whom the physician (or the physician s family member) has a financial relationship, the Stark Law may not ultimately prohibit that referral. This is because the Stark Law has over thirty exceptions that may permit an otherwise prohibited referral. 64 See e.g., the discussion at 73 FR et seq. 65 See e.g., the discussion beginning at 72 FR CFR (c)(1)(iii)

21 A financial relationship need satisfy only one exception. A financial relationship need only satisfy one exception in order the permit an otherwise prohibited referral. For example, if a compensation arrangement satisfies the inoffice ancillary services exception, that arrangement need not satisfy any other Stark Law exception In many cases, there may be a choice of exceptions that may apply to a financial relationship. In many cases, a number of exceptions may be available to exempt a financial relationship. For example, a compensation arrangement between a hospital and a physician relating to on-call services might be excepted under the exception for personal services arrangements or the exception for fair market value payments Types of Stark Law Exceptions. There are three broad types of Stark Law exceptions. Those exceptions can be organized in the following manner: (1) exceptions applicable to both ownership/investment interests and compensation arrangements; (2) exceptions applicable only to ownership/investment interests; (3) exceptions applicable only to compensation arrangements; (a) the exception that is applicable to indirect compensation arrangements. XII. Exceptions applicable to both ownership/investment interests and compensation arrangements the physician services and in-office ancillary services exceptions There are nine exceptions that apply to both ownership investment interests and compensation arrangements. These are the exceptions for: (1) physician services 67 ; (2) in-office ancillary services 68 ; (3) services furnished by an organization (or its contractors or subcontractors) to enrollees 69 ; (4) services provided by academic medical centers 70 ; USC 1395nn(b)(1); 42 CFR (a) USC 1395nn(b)(2); 42 CFR (b) USC 1395nn(b)(3); 42 CFR (c)

22 21 (5) implants furnished by an ASC 71 ; (6) EPO and other dialysis-related drugs 72 ; (7) preventive screening tests, immunizations, and vaccines; 73 (8) eyeglasses and contact lenses following cataract surgery; 74 and (9) intra-family members in rural areas. 75 This document will focus on the physician services and in-office ancillary services exception Why is the notion of a group practice important for the physician services and in-office ancillary services exceptions? The physician services exception allows a physician to refer a DHS that is a physician service to another physician who is either: (1) a member of the same group practice as the referring physician; or (2) a physician in the same group practice as the referring physician. 76 The in-office ancillary services exception permits a group practice to provide and bill for DHS that are ancillary to professional services provided by (1) a member of the same group practice as the referring physician; or (2) a physician in the same group practice as the referring physician. 77 (The in-office ancillary service also permits a solo practitioner to provide and bill for DHS that are ancillary to the physician s professional services.) 12.4 Group practices have a special status under the Stark Law in terms of providing compensation to their physicians. For example, under the Stark Law exception for bona fide employment arrangements, an employed physician may receive a productivity bonus based directly on the DHS that the physician personally performs. 78 However, the physician may not receive a productivity bonus for any DHS that the physician does not personally perform, e.g., DHS that are ancillary to CFR (e) CFR (f) CFR (g) CFR (h) CFR (i) CFR (j) CFR (a)(1) CFR (b)(1) USC 1395nn(e)(2); 42 CFR (c)(4)

23 22 the physicians personally performed services. A group practice can also pay a physician: (1) a productivity bonus based directly on DHS that are incident to services that the physician personally performs; and (2) a productivity bonus for DHS that the physician does not personally perform or that are not provided incident to the personally performed services, so long as the productivity bonus is not directly related to the volume or value of the physician s DHS referrals. 79 A group practice may also compensate a physician under a profit sharing program, so long as the profit shares are not determined in any manner that is directly related to the volume or value of referrals of DHS by the physician So what does it mean for a physician to be a member of the group practice, or a physician in the group practice? When is a physician a member of a group practice? Member of a group practice means: (1) a physician owner of a group practice; (2) a physician employee of the group practice; (3) a locum tenens physician, or (4) an on-call physician while the physician is providing on-call services for members of the group practice. 81 A physician is a member of the group during the time he or she furnishes patient care services to the group. 82 An independent contractor or a leased employee is not a member of the group, unless the leased employee meets the definition of an employee under the Stark Law. An employee under the Stark Law means any individual who, under the common law rules that apply in determining the employer-employee relationship (as applied for purposes of section 3121(d)(2) of the Internal Revenue Code of 1986), is considered to be employed by, or an employee of, an entity. (Application of these common law rules is discussed in 20 CFR and 26 CFR (d)-1(c).) When is a physician in the group practice? Physician in the group practice means: USC 1395nn(h)(4)(B)(i); 42 CFR (i) USC 1395nn(h)(4)(B)(i); 42 CFR (i) CFR CFR CFR